Economists see hypocrisy in current subsidy debate

The effects are still being felt from the World Trade Organization's (WTO) late April ruling that U.S. cotton support payments are unfair to farmers in developing countries. It's only the first volley in a battle to dismantle U.S. farm programs that some observers predict will last for many years to come.

An informal coalition of “developing” countries — Brazil, China, India and South Africa, to name a few — has targeted the $350 billion in subsidies paid annually to farmers in developed countries. These subsidies, claim the developing countries, undermine their ability to compete and are harmful to subsistence farmers.

Brazil was the first country to file a complaint with the WTO, specifically targeting the $1.54 billion in annual payments to U.S. cotton farmers and related agribusinesses. Immediately following the WTO's ruling on April 26, the U.S. House rightfully questioned Brazil's classification as a “developing” country.

A couple of Auburn University and Alabama Cooperative Extension Service economists — Bob Goodman and Jim Novak — are saying there is a lot of hypocrisy in the farm subsidy debate, and theirs is a valid argument.

They concede that U.S. cotton producers and merchants benefit tremendously from subsidies, which were designed to protect U.S. cotton growers from the financial devastation of low prices. And, by supporting U.S. cotton production, these subsidies undermine the ability of some Third World producers to compete.

“Even so, by enabling them to expand industrial capacity, the cheaper cotton resulting from cotton subsidies also benefits the foreign textile producers,” write the economists. “What they receive, in effect, is a subsidy compliments of U.S. taxpayers. Cheaper cotton also means cheaper clothes, which benefit consumers, too.”

Critics of subsidies also maintain that grain subsidies depress world prices and crowd out subsistence farming in many developing countries. This has some merit, says Goodman and Novak, but how many subsistence farmers are weighing into the subsidy debate? Very few, they contend.

The Brazilian producers protesting the loudest over U.S. subsidies are neither poor nor subsistent, say the economists. “They not only operate massive farms, but they benefit from technology made possible by U.S. farm subsidies — in particular, genetically engineered crops that have freed them from much of the added expense associated with insecticide and herbicide spraying.”

Goodman and Novak point out that American farmers have to pay technology fees on an acre-by-acre basis before they are allowed to plant transgenic crops. Brazilian farmers don't. “Their government has essentially told them they don't have to pay so much as one thin dime in technology costs — a free ride that amounts to a $40-an-acre subsidy.”

One other point worth considering, state the economists: “Subsidies so roundly condemned by Brazil and other developing countries are largely the reason we have genetically engineered crops in the first place. Biotech companies were able to go out on a limb and develop these products because they knew the economic stability provided by subsidies would insure there would be enough farmers in the business to buy genetically engineered products — products that have immensely benefited the environment and farm profitability.”

Goodman and Novak are well aware that theirs is a different view of the facts. They also are realistic enough to know that it probably won't alter the course of a long and bloody debate over subsidies. Even so, they say, it's a view worth sharing — and repeating — if only to underscore the hypocrisy that permeates so much of the farm subsidy debate.